How Are People Retiring in Their 30s?!

When you think about retirement, it's generally a time later in life after you've put many working years into a career. But today, some people are retiring in their 40s, 30s, and even in their 20s! What is the secret to retiring so early?

I reached out to several bloggers who either retired or reached financial independence by the time they reached their 30s to learn just how they did it.

Even if you are not aiming to retire at a very young age, these strategies can still help you accelerate your retirement.

Secret 1: Pay down debt ASAP

The first step toward early retirement is to get rid of debt as soon as possible. Making payments on debt limits your ability to build your investments and grow enough assets to retire. This is how Michelle Schroeder-Gardner of Making Sense of Cents got started on the path to financial independence in her early 20s. "In the beginning," she said, "I worked many, many hours a week so that I could pay off my debt in seven months, but it was well worth it."

Secret 2: Take advantage of compound interest

The key to reaching early retirement is to save a large portion of your income — for example, 50 percent or more — and let that money compound over time. How can you put away that much on a modest income? You need to live very frugally so you can apply a large percentage of your income toward investments.

Jeremy Jacobson, who runs Go Curry Cracker with his wife Winnie, reached financial independence in his 30s. He explained, "We just used our income to buy our freedom rather than things and experiences that we would have quickly forgotten. Ironically, thanks to compound interest we can now have things, experiences, and freedom."

Secret 3: Multiple sources of income

Many of these bloggers who retired early had a traditional career for a time, and gradually built up "side hustles" to generate multiple streams of income. The extra cash helps get debt paid off faster and starts building your investment accounts sooner. Writing, owning income properties, selling items on eBay or Amazon, and consulting are some ideas to bring in "extra" money.

Secret 4: Commit to living differently

One thing I noticed is that these people are quite different from their peers. They are not concerned about fitting in and even celebrate living much differently than others their age.

Travis Hornsby, blogger at Millennial Moola, was able to retire in his mid 20s. How did he manage it? "I lived in a semifinished basement for several months because it included utilities and allowed me to supercharge my savings rate," he explained.

Justin McCurry at Root of Good retired in 2013 at age 33 by redefining what qualified as a sacrifice. "Unlike our peers, we never upgraded our starter home to a McMansion, nor did we trade in our Honda sedans for luxury cars," he said. "Is that a sacrifice?"

Kristy Shen, one half of Millennial Revolution and retiree by age 31, resisted the pressure to buy a large home and settle into a traditional lifestyle. "We stuck to our guns because we knew the math didn't make sense," she said.

Secret 5: Know when to stop

Many of those who retire at an early age plan to maintain a low spending rate after they retire, allowing them to leave the workforce early. But how much is enough? There are many opinions about this, but many subscribe to the 4 percent safe withdrawal rate as a rule of thumb. Simulations have shown that under a range of economic scenarios, you can withdraw up to 4 percent per year from your investment portfolio with a very low probability of running out of money during retirement.

If your desire is to retire as soon as possible, it is important to have a specific goal for how much you need to accumulate so you don't end up spending extra years in the cubicle. For example, if you can live on withdrawing $40,000 per year from your account, then $1 million is the minimum amount you would need to fully retire under the 4 percent safe withdrawal rate. If you will have income after you retire, then you will need to withdraw less, so the balance you need to accumulate is less — and you can retire earlier.

Secret 6: Income after "retirement"

Many of these people who "retire" very early are actually still working at least part-time. Financial independence may be a better description than retirement for this lifestyle. Financial independence means that although you are still working, you don't need to do it purely for the money anymore.

Michelle of Making Sense of Cents started her blog in graduate school a few years ago to help pay off student loans faster. As a dramatic example of income after reaching financial independence, she now makes nearly $1 million per year from her blog!

Secret 7: Invest for growth

Saving the money is the first step, but you have to invest it so it will grow. Parking your savings in a bank account at less than 1 percent interest is not going to get you to retirement very fast.

Kristy of Millennial Revolution regrets her initial hesitation to dive into investments. "I think we spent a lot more time waffling on whether we should do the investing-route or the housing-route than we should have, and that caused some missed opportunities along the way," she said. "As a result, we stayed out of the market when the S&P 500 bounced off the floor in early 2009 because we were still deciding whether to buy a house. As a result, we missed a 40 percent rally from 2009–2010 just sitting in cash! Fortunately by the time we decided in early 2012, there turned out to be plenty more gains to go in this bull market."

Secret 8: Don't sink money into a house

This one comes as a bit of a surprise to me since I have gone the route of investing in a home. But several folks who have reached early retirement recommend avoiding homeownership in order to reach financial independence sooner.

Kristy and her husband Bryce felt scrutiny at their decision to forgo homeownership and continue to rent. "Going against the grain is tough, but it's even tougher to do for such a long period of time while everyone around you is pointing and saying 'What an idiot. They're renting and throwing money away.'" she explained.

The advice not to buy a house makes sense if your goal really is to minimize costs. Owning a home not only commits you to a mortgage payment, but also to additional expenses such as insurance, taxes, repairs, and maintenance. Plus, if you own a home, you are more likely to spend money on furniture, landscaping, and home improvement projects. In some cases, you may be better off minimizing your expenses by renting instead of buying a place to live during your run up to early retirement. (See also: Rent Your Home or Buy? How to Decide)

Secret 9: Enjoy now

In my experience, most people in their 20s are not focused much on retirement at all. But if you want to retire in your 30s, you will need to start working toward that goal very early in life. The earlier you want to retire, the more aggressively you will need to save money. But it is possible to focus too much on making and saving money. As you look forward to some great experiences after retirement, you don't want to miss out on unique opportunities to enjoy life along the way.

Joe Udo of Retire by 40 emphasizes this point: "If you're working toward early retirement," he said, "don't forget about the present. Being miserable every day will screw up your mental health."

How early should you retire?

Very early retirement is not for everyone. Retiring early clearly requires some significant sacrifices and lifestyle adjustments. You'll have to decide if this cost is worth the reward of reaching financial freedom years (or possibly even decades) earlier.

If you'd like to learn more and read about the journey of the bloggers mentioned in this article, check the table below.

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